BEIJING — China, the largest foreign holder of U.S. debt, issued a scathing condemnation of American economic practices on Saturday, saying that "mounting debts and ridiculous political wrestling in Washington have damaged America's image abroad."
Following the decision by the Standard & Poor's rating agency to downgrade the United States' credit rating a notch from AAA on Friday evening, the editorial in China's official Xinhua newswire warned that Beijing "has every right now to demand the United States to address its structural debt problems and ensure the safety of China's dollar assets."
China currently has no other obvious options for the $1.1 trillion-plus that it holds in U.S. Treasuries, a fact that links Chinese interests to the stability of the dollar and makes the prospect of drastic action by Beijing highly unlikely.
The strong wording of the Xinhua piece, however, suggested a fraying patience.
The editorial began with the line "The days when the debt-ridden Uncle Sam could leisurely squander unlimited overseas borrowing appeared to be numbered." It ended at: "All Americans, both beltway politicians and those on Main Street, have to do some serious soul-searching to bring their country back from a potential financial abyss."
In Washington, the White House issued a statement from the press secretary, JayCarney. It said: "The president believes it is important that our elected leaders come together to strengthen our economy and put our nation on a stronger fiscal footing.
"The bipartisan compromise on deficit reduction was an important step in the right direction. Yet, the path to getting there took too long and was at times too divisive. We must do better to make clear our nation's will, capacity and commitment to work together to tackle our major fiscal and economic challenges....Over the coming weeks the president will strongly encourage the bipartisan fiscal committee as well as all members of Congress to put our common commitment to a stronger recovery and a sounder long-term fiscal path above our political and ideological differences."
The sharp Chinese rhetoric was a reminder of the complexities of the relationship between the United States and China, which is bound by large economic ties - some $457 billion in total two-way trade last year, for instance - but also given to increased rivalry and suspicion.
As China has expanded its reach in recent years, becoming the world's second-largest economy, securing natural resource contracts across the world and beginning to push for greater military capabilities, many observers have noted a greater willingness in Beijing to publicly upbraid Washington.
In addition to recommending "substantial cuts" to "bloated social welfare costs" in America, the Xinhua editorial pointed to what it characterized as a "gigantic military expenditure."
That echoed remarks last month by China's top general, Chen Bingde, who told a press conference that as America deals with "difficulties in its economy ... it would be a better thing if the United States did not spend so much money on the military." He made those comments while standing next to Adm. Mike Mullen, the chairman of the U.S. Joint Chiefs of Staff.
Following the last-minute congressional deal to raise the U.S. debt ceiling and avoid a default on Tuesday, the Beijing-based Dagong Global Credit Rating Co. announced the next day that it was dropping its rating of the United States from A+ to A with a negative outlook. A release by Dagong said that, "the defects in the (U.S.) political structure exposed in the bipartisan struggle indicate that the U.S. government has difficulty in ultimately resolving the sovereign debt crisis."
The U.S. Securities and Exchange Commission last year denied Dagong's application to be a nationally recognized credit rating agency in the United States, and it does not have much heft internationally. However, the agency's findings are prominently reported by Xinhua.
The editorial on Saturday pointed out that past Dagong ratings were met with "a sense of arrogance and cynicism from some Western commentators."
But, the editorial said, the move Friday by Standard & Poor's "has proved what its Chinese counterpart has done is nothing but telling the global investors the ugly truth."
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McClatchy Newspapers 2011